Governor Bill Lee wants to run TennCare without interference from Medicaid officials in Washington.. He says he can save $2 billion a year out of a $12 billion budget.

By Amy Goldstein

NASHVILLE, TN -— Tennessee unveiled a plan on Tuesday to convert Medicaid into a block grant — an idea long supported by conservatives that would rupture the federal government’s half-century-old compact with states for safety-net insurance for the poor.

Tennessee is setting up the nation’s first test case of how far the Trump administration is willing to go to allow a state the “flexibility” that has become a watchword of the administration’s health-care policies.

If TennCare, as that state calls its Medicaid program, wins federal approval for its plan, it could embolden other Republican-led states to follow suit. It also almost certainly would ignite litigation over the legality of such a profound change to the country’s largest public insurance program without approval by Congress.

Medicaid, originated as part of President Lyndon B. Johnson’s Great Society of the 1960s, is an entitlement program in which the government pays each state a certain percentage of the cost of care for anyone eligible for the health coverage.

Under block grants, first broached during the Reagan administration, the government would instead pay a state a lump sum each year while freeing it from many of Medicaid’s rules, including who must be allowed into the program and what health care is covered. Proponents contend the model would save money and let states run the program more efficiently; opponents contend it would strand states and vulnerable residents during economic downturns or as expensive new therapies emerge.

Medicaid block grants were part of unsuccessful Republican legislation two years ago that would have dismantled major parts of the Affordable Care Act, although block grants do not inherently conflict with the law. Internal GOP disagreements over the idea were a significant reason those bills failed.

Since then, President Trump has called for Medicaid block grants in his budgets, though Congress has ignored the idea. Seema Verma, administrator of the Department of Health and Human Services’ Centers for Medicare and Medicaid Services (CMS), has urged states to move toward block grants, although guidance she has written for states has been under review for months at the White House’s Office of Management and Budget.

Tennessee is the first state that is coming forward.

Its draft proposal would affect more than 1 million of the 1.4 million state residents on TennCare, according to the state’s Medicaid director. The block grant would be used for medical services for children, pregnant women, parents and other core groups of people such as those who are blind and disabled. Some aspects of Medicaid would be excluded from the change, such as coverage of prescription drugs and payments to hospitals that treat a large share of low-income patients.

In an interview, Gov. Bill Lee (R) said Trump administration officials “need some examples to show the rest of the country how to do this, and we have an example. . . . We consider ourselves as leaders,” having run Medicaid in cost-efficient ways for years, he said.

“It would be very important for the country to see an opportunity to lower the cost of Medicaid services without changing the quality or level of those services to the Medicaid population,” Lee said. “For Tennessee to be an example of how we can deliver that would be a very big deal.”

The draft plan is not a pure version of a block grant. It would rely on fixed annual payments, adjusted yearly for inflation. The state would get extra money per person in years in which enrollment grew but would not get less money if enrollment shrank.

If the state spent less in a given year than it would have under the traditional Medicaid system, Tennessee would split those savings with the government, according to the draft plan, in another departure from a classic block-grant approach. It is proposing not to cut back on eligibility rules or benefits.

TennCare Director Gabe Roberts said in an interview that he and his staff have had several conversations with CMS officials, giving them “a sense of what to expect . . . from a conceptual level.” Roberts said that the federal officials have largely listened without providing feedback.

A CMS spokesman, Johnathan Monroe, declined to discuss the agency’s recent interactions with TennCare, saying only, “CMS supports efforts to improve accountability for cost and outcomes in Medicaid, and we look forward to working with Tennessee once they submit their proposal to help them achieve these goals as effectively as possible within our statutory authority.”

Under a law the Tennessee legislature adopted in May, the state must submit a final version of its plan to CMS by late November. Starting Tuesday, the draft is open to a month of public comment. Critics are trying to turn out large numbers in opposition.

National patient-advocacy organizations already have been protesting. A dozen groups wrote to the governor in late April that, for sick and vulnerable patients, changing to a block grant “jeopardizes their access to treatment and, in turn, their health.” More than two dozen groups wrote to CMS’s Verma in July, urging her to reject states that ask for block grants.

Within Tennessee, opponents have been mobilizing. Michele Johnson, executive director of the Tennessee Justice Center, a group representing vulnerable residents needing health care and other assistance, said the proposed changes to TennCare would be “devastating for our health infrastructure, for the Tennessee economy, and for our communities.”

Johnson disputed the governor’s assertion that the state has been uncommonly efficient in running TennCare, saying that enrollment fell when the state had difficulty adapting its Medicaid eligibility system to comply with ACA rules.

“If the block grant is approved in a way that violates the law,” Johnson said, “there is no question there would be a lawsuit.”

TennCare has an important role in a state with large pockets of poor residents. Half of Tennessee children depend on the program.

With Republican supermajorities in both chambers of the state legislature, Tennessee is one of 14 states that have not expanded Medicaid, as the ACA allows, to people with slightly higher incomes. Roberts, the TennCare director, said that savings the state might generate under a block grant would probably be used to improve benefits for certain groups already covered through the program, though he did not rule out narrow expansions of eligibility.

TennCare has a history of being distinctive. In 1994, it became the nation’s first Medicaid program to enroll everyone in it into managed care plans. At the time, it used cost efficiencies from HMOs to fold into the program people classified as uninsurable — essentially a precursor to the ACA’s guarantee that Americans with preexisting medical conditions may not be rejected or charged more by insurers.

In the early 2000s, TennCare made news again, when the program was overspending and a Democratic governor made cuts that forced 300,000 Tennesseans off the rolls.

Recently, Alaska flirted briefly with the idea of asking for block grants. Utah has asked for federal permission for a related idea — per-person limits on Medicaid spending — and is awaiting a reply.

James Capretta, a resident fellow at the American Enterprise Institute specializing in health care, said that many other states might be fearful of the financial risks. Still, he said, “people have been talking about block grants forever. It wouldn’t be bad to have one state try it and see what happened.”

But Johnson, of the Tennessee Justice Center, said: “The downside is, we are going to have less money in a state that is in-cred-ibly poor. Both Governor Lee and President Trump are treating Medicaid as a piggy bank, and half the kids in our state are relying on this piggy bank.”